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Short Squeeze Play Underway


Long in the tooth, eh?


The current uptrend has taken its toll on short sellers. This month's short interest reports from the various exchanges show that as of the trade date of July 12th, short intensity levels have dipped to moderate levels. Moreover, it is reasonable to contemplate that more short covering has occurred since then given the uptrending price action.

In our Type 2 list (strong price action but light short intensity) we find names such as EBAY, BRCM, GNSS, QCOM, GOOG, ALTR, BIIB, GENZ, SPLS. In our Type 4 list (weak price action and light short intensity) we find names such as ERTS, SBUX, CSCO, INTC, LRCX, JNPR, DISH, QLGC, EWBC, LPNT, GILD, DLTR, ESRX, ROST, SINA, SYMC. Most of these symbols are poster children for momentum followers.

The above chart shows our electronic technology index. Electronic technology is our third best ranked sector, however short intensity is starting to fall. Such dips in short selling are part of the "advance" process as shorts are squeezed out. The more shorts disappear, the more mature the advance phase. There remains 17% of electronic technology under "short squeeze" pressure - a healthy number. One concern is that positive seasonality has run its course. There is a secondary seasonal peak in August, in line with the August seasonal peak of our 20-year seasonal cycle.

We want to give the current advance phase as much chance to perform as possible. However, the bull is getting a bit long in the tooth. We will continue recommend pruning long positions over the next month as the market advances, and await signs of price weakness to initiate additional short positions.

No positions in stocks mentioned.

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